Attention on Extension of 'Corona Loan' Interest Deferral... Announcement This Week

Authorities "Hint at Re-extension" vs Financial Sector "Fears Growing Defaults" in Tight Debate
Both Sides Agree on Loan Maturity Extension... 6-Month Re-extension Likely
Decision Expected Around June 16 Financial Services Commission Chairman-Association President Meeting

[Asia Economy Reporter Kim Jin-ho] Financial authorities are facing a dilemma over whether to extend the third phase of the ‘COVID-19 Financial Support Program’ for small business owners and self-employed individuals. Although an announcement was expected last week, strong opposition from the financial sector against the ‘interest repayment deferral’ measure has delayed the final decision to this week.

While financial authorities worry that ending the measure could put those who have been surviving on debt in a difficult situation, the financial sector argues that it would only increase latent insolvency, leading to a standoff. Experts have also pointed out that it is now time to distinguish between the viable and non-viable cases.

According to financial authorities and the financial sector on the 13th, the Financial Services Commission will finalize this week whether to extend the COVID-19 Financial Support Program for a third time. On the 10th, Financial Services Commission Chairman Ko Seung-beom met with the heads of the five major financial holding companies to discuss the matter, and it is known that final adjustments on the details are currently underway at the working level.

The heads of financial authorities and the financial sector have reached a consensus on extending loan maturities by six months until March next year. This is intended to alleviate the difficulties faced by small business owners and the self-employed amid ongoing stringent social distancing measures. Financial authorities have repeatedly emphasized that the quarantine situation and COVID-19 financial support measures are closely linked.

However, there is disagreement between the two sides regarding the interest repayment deferral. The government believes that the interest repayment deferral should also be extended, considering the hardships faced by small business owners and the self-employed who are on the brink of collapse. Chairman Ko conveyed this opinion during a field meeting with the Korea Federation of SMEs on the 9th.

On the other hand, the financial sector has demanded the termination of the interest repayment deferral measure. They express concerns that the prolonged COVID-19 financial support has created a so-called ‘illusion effect,’ which could increase potential insolvency. It is reported that some financial holding company heads directly conveyed this stance to Chairman Ko during the meeting on the 10th. A banking official pointed out, "With interest rates rising sharply, if interest repayment continues to be deferred, the burden on borrowers could increase significantly during the future normalization process."

Experts also argue that the interest repayment deferral should now be ended. Professor Lee Min-hwan of Inha University’s Department of Global Finance said, "The longer the period extends, the more the principal and interest burdens will grow like a snowball. It is necessary to defer the principal but require some interest payments to reduce future burdens."

Accordingly, financial authorities and the financial sector are expected to engage in final negotiations over whether to extend the measure. The options currently being discussed include ▲6-month extension ▲3-month extension ▲termination. However, even if the interest repayment deferral is ended, financial authorities plan to propose a soft landing plan that allows borrowers to pay principal and interest over an extended period.

Meanwhile, the final plan for the COVID-19 Financial Support Program is expected to be confirmed around the 16th. Chairman Ko will meet with the heads of six associations ? the Korea Federation of Banks, Korea Financial Investment Association, Life Insurance Association, General Insurance Association, Credit Finance Association, and Korea Federation of Savings Banks ? on the 16th. The meeting is expected to cover discussions on the COVID-19 Financial Support Program as well as financial authorities’ demands for management of the rapidly increasing loans in the secondary financial sector.

This content was produced with the assistance of AI translation services.